Many of my SME and NFP clients ask me “What is a CFO? …. And why do I need one?”
What they are really asking is, “what value can a CFO bring, and what can a CFO do that my finance/accounting/book-keeping team cannot do?”.
BREADTH & COMMERCIALITY
A CFO (Chief Financial Officer) has responsibility for ALL the financial affairs of an organisation. It normally takes around 10+ years of diverse finance experience before they get their FIRST CFO role. Being the top finance person in these sizeable organisations means that they normally acquire commercial, operational and strategic experience.
The finance/accounting team or accountant/book-keeper has responsibility for the accounting system. In this context this typically involves processing invoices and transactions, making payments to suppliers and staff, compiling budgets, facilitating any audits, preparing P&Ls and balance sheets, and compliance work such as filing tax returns. It is an important and critical part of the overall financial system. It is the engine room, or the lifeblood of the financial ship, giving the ship energy, information and the ability to move. But it is not the entire financial operation. There are other parts of the metaphorical ship,e.g. navigation, steering and radar rooms.
CFO’s financial role. In addition to the accounting system, CFO may focus on:
- Need forward looking reporting. Accounting system is generally historic (past transactions). We don’t drive our cars with eyes fixed on rear view mirror!
- Tax planning (not filing)
- Increased focus on cashflows rather than P&Ls (profitable businesses can go bankrupt)
- Reporting that gives information on how different parts of the business are performing (rather than the information that ATO or auditors require)
- Medium term business plans with milestones and KPIs (not annual budgets)
CFO’s commercially and strategic role:
- Partnering with, and advising, the CEO/owner to drive business performance
- Manage and mitigate risks
- Linking financial and operational strategies
- Evaluating and advising on projects, products, customers, pricing strategies
In a nutshell, a good CFO will have breadth at all areas of finance and accounting, but in addition have commercial and strategic acumen.
DO YOU REALLY KNOW WHAT YOUR BUSINESS IS DOING?
As businesses grow and become more complex it is more difficult for owner/managers to have comfort that everything is under control. No longer can they do it all, and see it all, but they don’t know how to setup systems and structures to delegate.
This is currently made more difficult by pandemics, geopolitical tensions, supply chain disruption etc.
Many good businesses fail at this early growth stage. We often call it “the first brick wall”!
It’s a vicious downward spiral. The business suffers, or worse case, runs out of cash.
SO, DO YOU NEED A CFO?
An experienced CFO knows how to setup these systems, to better enable profitable, crisis free growth. They can act as advisors, partners and mentors.
So YES, you may very well need a CFO.
Your finance team can also benefit. By working with the CFO they can up-skill and broaden their experience.
“But I don’t need and can’t afford a full-time CFO”.
ABSOLUTELY CORRECT, but you do need help, just not full-time help.
SOLUTION….a Part Time CFO model. You pay for the CFO only when you need them!! On demand CFOs.
Written by Gary Campbell. Gary is an experienced CFO, based in Victoria, working for the CFO Centre Australia. He is particularly successful at profit improvement, financial turnarounds, risk management and corporate governance for SMEs and NFP. He can be contacted here